Silicon Valley Bank Collapses, Seized by Regulators

Financial regulators have closed Silicon Valley Bank and taken control of its deposits, the Federal Deposit Insurance Corp. announced Friday, in what is the largest U.S. bank failure since the Global Financial Crisis more than a decade ago.

The collapse of SVB, a key player in the tech and venture capital community, leaves companies and wealthy individuals largely unsure of what will happen to their money.

As of the end of December, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits, according to the press release. The FDIC said it was unclear what portion of those deposits were above the insurance limit.

SVB was a major bank for venture-backed companies, which were already under pressure due to higher interest rates and a slowdown for initial public offerings that made it more difficult to raise additional cash.

The closure of SVB would impact not only the deposits, but also credit facilities and other forms of financing. The FDIC said loan customers of SVB should continue to make their payments as normal.

The move represents a rapid downfall for SVB. On Wednesday, the bank announced that it was looking to raise more than $2 billion in additional capital after suffering a $1.8 billion loss on asset sales.

The shares of parent company SVB Financial Group fell 60% on Thursday, and dropped another 60% in premarket trading on Friday before being halted.

This is the official announcement of the failure from the Federal Deposit Insurance Corporation, “FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California”. The Washington Post is calling this the second-largest failure of a federally-insured bank in U.S. history, after Washington Mutual in 2008, “Silicon Valley Bank closed in second-biggest bank failure in U.S. history”. Here is a story from yesterday, 2023-03-09, with more background on the troubles leading up to today’s collapse.

According to SVB’s mid-quarter update, one of the primary problems the bank faces has to do with the amount of money its customers are spending. Total client funds have fallen for the last five quarters, as cash burn has continued at a rapid pace despite the slowdown in venture investing.

“Client cash burn remains ~2x higher than pre-2021 levels and has not adjusted to the slower fundraising environment,” SVB said.

In January, SVB expected average deposits for the first quarter to be $171 billion to $175 billion. That forecast is now down to $167 billion to $169 billion. SVB anticipates clients will continue to burn cash at essentially the same level as they did in the last quarter of 2022, when economic tightening was already well underway.

Silicon Valley Bank was founded in 1983. Around 1984, people from the nascent bank came to visit Autodesk, prospecting for business. It was clear they didn’t really understand how a company had managed to become the leader in its industry sector with no venture capital and just US$ 59,030 in money put up by its founders. When I asked what Silicon Valley Bank could do for us that our existing bank, First Interstate, could not, they basically said that if we deposited money there, they’d be happy to loan it back to us. We never heard from them again.




Small and regional banks are getting massacred in the stock market today.



BTC down on the news. (To clarify, the news of a “run on silicon valley bank” was trending yesterday. So the connection with Silvergate Bank is temporal correlation likely meaning SV folks were liquidating BTC early.)

Gold up:

I suppose in this context it is worth mentioning the abject nihilism that has apparently taken hold among young men in Silicon Valley – as reported to me by a guy I started working with at PLATO back in 1974 but who moved to SV to work at Atari circa 1978, and who has 2 grown kids there. They see the world as “Satanic” – not in the sense of an actual deity but in the sense of being chaotic/incoherent – so “anything goes”.

That said, is it really any worse than the mid-Atlantic’s unaccountable behavior that’s been obvious to the most casual observer for so many decades?

Flood an individualistic society, whose high trust is the product of thousands of years of single combat to the death as the appeal of last resort in dispute processing, with collectivists and you get a lot worse than sewage on the sidewalks.


“… what will happen to their money”. Maybe the article should have asked “what has already happened to their money”. We all know the answer is – it has gone, lost, except for the 10% to the big guy. Now the people with accounts at the bank in excess of FDIC insurance will find out if those political “contributions” they made to California Democrats will pay off.


As of December 31, 2022, the last filing, the bank had US$ 175 billion in deposits, of which US$ 151.5 billion were uninsured. Nobody knows know much depositors got out in the last few days before the hammer came down.






Fourteen months ago:


Here is their ESG Report for 2022, “Living Our Values”.


Go woke go broke.


There is now an exchange-traded fund (ETF), SJIM (“short Jim”), which allows you to trade the inverse of Jim Cramer’s stock touts, as TheStreet reported on 2023-03-02, “The Inverse Cramer ETF Is Live!”. For those who prefer to lose their “mad money”, there is the corresponding LJIM which follows his picks.

As NASDAQ reported on 2022-10-12 in “Inverse Cramer ETF is coming to the real world”:

According to Tuttle Capital, both ETFs will hold 20-25 Cramer picks in an equally weighted allocation. Because Cramer often makes his picks live on TV (or via tweets), the fund will likely have significant turnover to maintain low tracking error with Cramer’s recommendations. I’m curious to see if there will be large capital gains distributions every year due to this.

The premise behind SJIM is theoretically sound and can be boiled down to one observation: “the average stock picker performs horribly”. Stock-picking is extremely difficult to pull off consistently. Everyone is a genius in a bull market, but during bear markets like these, the average stock picker tends to trail a simple index fund significantly.

Case in point, studies have found that just a handful of stocks (86 in total) account for half of the total stock market’s return in the last 90 years, with 96% underperforming risk-free Treasury Bills. Another study found that a blindfolded monkey could beat most stock pickers. Unless you think he’s a prophet with his stock picks, betting against Cramer is like betting against any stock picker.


Head of “Financial Risk Management and Model Risk” and Silicon Valley Bank’s UK subsidiary.

Here is an example of Silicon Valley Bank (SVB) risk management.

“Let’s lock up eighty billion dollars for ten years in mortgage-backed securities in our hold-to-maturity portfolio at a historically low interest rate of 1.56%. Now what time is that rainbow flag rally?”

But, not to worry, things are just fine with the big banks.

ZeroHedge is reporting “Record Bank Run Drained A Quarter, Or $42BN, Of SVB’s Deposits In Hours, Leaving It With Negative $1BN In Cash”:

[S]hortly after the Bank announced a loss of approximately $1.8 billion from a sale of investments and was conducting a capital raise (which we now know failed), and despite the bank being in sound financial condition prior to March 9, 2023, “investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank.

As a result of this furious drain, as of the close of business on Thursday, March 9, "the bank had a negative cash balance of approximately $958 million."

The article lists depositors who are likely exposed to losses above the US$ 250,000 insured amount in their accounts, including the USDC stablecoin, ROKU, BlockFi, Roblox, Rocket Lab, and Lending Club.


Back in the mid 1990s the incipient signs of this Third Worldization of Silicon Valley hit in the form of “rolling blackouts” cutting off the electricity to Silicon Valley in a manner more traumatic than the recent snipers shooting holes in transformers. At the time I was living in the house that Keith Henson used to own on College Avenue near the California Ave. strip where people gathered to drink beer during the experience of the 1800s. Local “trailer trash” living in their RVs due to the skyrocketing land rents were heroes with their monoxide spewing electric generators providing an incandescent light or two for the post-apocalyptic revelers.

Enron had been hiring H-1bs for the purpose of expatriating them to where they couldn’t be subpoenaed and, in addition to the gold flowing from the US to India, there were funds going to businesses in India.

It was obvious back then that the US was already a hollow state – a fact made all the more obvious by the fact that despite 82% opposition, the H-1b program was expanded for the glory days of the DotCon bubble.

The world reserve currency status of the US is being mined out and, despite the “best” efforts of our hostile elites, the dried husk will be left to blow in the wind as BRICs takes center stage.


Signature becomes the third-largest bank to ever fail in the U.S., behind Silicon Valley Bank and Washington Mutual in 2008, if its assets haven’t changed significantly since the end of 2022. Signature had $110 billion in assets as of Dec. 31, ranking 29th among U.S. banks. It had $88 billion in deposits as of that date, and approximately 89.7% were not insured by the Federal Deposit Insurance Corporation.

All of those deposit holders will get their money back, according to a joint statement from the Treasury Department Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg, who cited a “systemic risk exemption” that is also being applied to all Silicon Valley Bank deposit holders. Shareholders and certain unsecured debt holders will not be protected, they added, and senior management had been removed.

Signature served clients in the cryptocurrency world and had been trying to reduce its exposure. Like Silvergate Bank, another crypto-friendly bank that said last week it would voluntarily wind itself down, it suffered from a deposit outflow in the aftermath of the collapse of crypto exchange FTX. Deposits dropped 17% in the fourth quarter of 2022 as compared to the year-earlier period.

So, the U.S. Federal Reserve will print whatever money it takes to pay off depositors in these two banks (so far) that have failed. This will, of course, have no deleterious consequences on holders of its “money”, whose supply has thus been increased, nor in increasing the moral hazard for other banks’ “senior management” to gamble with customer funds.

In other, unrelated news, Bitcoin, which cannot be created out of thin air by central or commercial banks, is up 9.06% versus the US$, at BTC/US$ 22,508.

Another one bites the dust.



ZeroHedge reports, “First Republic Shares Crash 60% As Regional Bank ‘Crisis In Confidence’ Spreads”.

Shares of the regional bank are down 60% in the premarket. The lender said in a statement late Sunday that it had more than $70 billion in unused liquidity to fund operations from agreements that included the Federal Reserve and JPMorgan Chase & Co.

“The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic’s existing liquidity profile,” the bank said, adding that more liquidity is available through the Fed’s new lending facility.

“The plunge in its shares is classic market psychology at work, with investors starting to question the credentials of any lender that may be remotely in the same category of Silicon Valley Bank,” Bloomberg’s Ven Ram wrote.

Well, that should solve the problem.


So, Joe mumbles “…strengthen oversight and regulation of larger banks…”. By implication, if your money is in one of the smaller banks—get it out now!


I have emergency funds across three regional credit unions (in the State of Texas) and one multi-national bank, figuring in a SVB-like event, the $250,000 FDIC may take a while to be received … and will be “worth less” when received years later in our current high inflation environment.

If credit union profits are from loans (such as auto loans and mortgages), absent fraud, assets should be safe. If credit union is investing in securities, and leveraging, assets are at risk.

The question is, with regional credit unions, did I choose wisely?

Also, how much of short term assets should be in T-Bills and long term in BTC. Interesting times.


Note that deposits in credit unions are not insured by the FDIC. Credit union deposits are insured up to US$ 250,000 by the National Credit Union Share Insurance Fund, which is operated by the National Credit Union Administration (a federal agency). This insurance applies to all federal credit unions and state-chartered credit unions which are members of the insurance fund. Most state-chartered credit unions are members, but not all—it’s worth inquiring whether a state-chartered credit union is a member you judge this federal insurance trustworthy.

There is also the question of liquidity. A financial institution can have a safe loan portfolio, in terms of interest payments and expectation of repayment at maturity, but insufficient funds to pay off depositors if they all want their money back at once. In a financial crunch, it may not be possible to liquidate a loan portfolio or, if liquidated, only at a loss (whereas there would be no loss if held to maturity). This is what happened to Silicon Valley Bank, which sunk US$ 80 billion in low interest rate mortgage backed securities with long maturities which, if they sold them to meet withdrawal demands, would be at a loss (since interest rates have risen since they were bought) sufficient to wipe out the capital of the bank, which was leveraged something like 185 times.

There’s also the question as to how the credit union holds these mortgages and auto loans. Many financial institutions do not hold and service loans directly any more, but rather buy “securitised” instruments assembled from a large collection of loans. Mortgage-backed securities are an example of these. In theory, this is safer because default risk is spread over a large number of loans as opposed to a small portfolio of loans in one region, which may have correlated defaults in case of a downturn in that area. Of course, in 2008 we saw how well that theory worked when the New York boys got into the game of packaging mortgages into “AAA rated” securities.

That depends on an individual’s situation, appetite for risk, and expectations for the future. I’ve never written about Bitcoin as a reserve asset, but I did discuss similar issues regarding gold in a 2008 Gnome-o-gram titled “The Ultimate Refuge”.


The early BTC liquidation was, as I said above, most likely the result of Silicon Valley holders of BTC fearing liquidity problems. BTC recovered as the liquidity risk got discounted. The recovery to a higher level than pre-SVB collapse may reflect increased rationality about the irrationality of USD authorities. However, BTC pricing seems like it is pretty heavily controlled ever since it hit $20k almost a year ago.

The big uncertainty about BTC value is how much longer the irrationality of the USD authorities can be tolerated by the markets. It’s really difficult to estimate that because of the network effect “vendor lock-in” demand for something like MS-DOS or USD as world reserve currency: Both getting their value “out of thin air” by positive network externalities falling on the respective “operating systems”.